Recent stock market volatility leaves many top FTSE 100 stocks looking too cheap to miss. Financial services giant Aviva (LSE:AV.) is one blue-chip share I’m thinking of buying following recent share price weakness.
This week the company closed at its cheapest level since last December. So far in 2023 it has lost a whopping 15% of its value.
On the one hand I can understand why Aviva shares have lost some of their lustre. Demand for life insurance and investment products tends to fall during tough economic times. And conditions in the firm’s core UK and Ireland marketplace look set to remain difficult for the foreseeable future.
Too cheap to miss?
However, I believe the threat of near-term trading turbulence is baked into the Footsie firm’s low valuation. It trades on a forward price-to-earnings (P/E) ratio of 7.1 times, well below the index average of 14 times.
As a keen dividend investor I’m also drawn in by the huge 8.1% dividend yield for 2023. This is more than double the 3.7% average for FTSE 100 shares.
It’s my belief that Aviva’s share price will recover strongly from current levels. Over the long term I reckon the company will deliver exceptional returns through a combination of capital appreciation and dividend income.
Why I’d buy Aviva shares
Here are three reasons why I think it’s a winner right now:
1. A growing market
Rapidly changing demographics in its domestic and Scandinavian markets provide a wealth of opportunity for the company. In other words, demand for its pensions, retirement and investment services could take off as the number of elderly people rockets.
In the UK, for instance, one in five people will be aged 65 or over by 2030, the Office for National Statistics predicts. This gives the firm lots of business to win as people plan for their later years.
The company has the brand power to fully capitalise on this opportunity too, created by the merger of industry heavyweights Norwich Union and Commercial Union in 2000.
2. Excellent cash generation
Make no mistake: Aviva has made creating cash an art form. Helped by its successful £750m cost-saving programme, cash remittances soared 11% in 2022 to more than £1.8bn.
And last month the firm said it’s on course to beat its cash remittance target of above £5.4bn for the two years to 2024. Such remittances represent the surplus cash that its divisions send back to the overall group.
Excellent cash generation gives the company extra money to invest for growth. It also provides more capital for it to distribute to its shareholders, which leads me to my ext point.
3. Big dividends and buybacks
Aviva, like many life insurers, has been very generous when it comes to returning cash to investors.
In 2023 alone it has pledged to spend a whopping £915m on dividends. The business has plans to raise annual dividends by low-to-mid single-digit percentages thereafter.
In addition, the firm has launched several major share buybacks in recent times, most recently a fresh £300m repurchase that it completed in June.
All things considered, I think Aviva shares could deliver spectacular returns over the next decade. And I think recent price weakness represents a great dip-buying opportunity.
